Yes Bank Reconstruction Scheme Locks In 75% Of All Shareholding For Three Years

The final reconstruction scheme for Yes Bank Ltd. notified by the government locks in 75 percent of all shareholding for three years.

Gurmeet Chadha, co-founder of Complete Circle Consultants, said the move was “strange” and would lead to a lot of issues for exchange-traded funds currently holding Yes Bank when the stock moves out of the index at the end of the month.

That’s also corroborated by IiAS’s view. Yes Bank’s three-year lock-in will create complications for index funds once the lender is removed from an index, it said. Yes Bank will be replaced in the Nifty 50 by Shree Cement, and by Bandhan Bank in the Nifty Bank Index from March 27. If index funds are not permitted to replace Yes Bank, they will no longer track the index, leading to tracking errors and other complications in performance measurements, IiAS said.

Yes Bank has gained 58.28 percent in the week ended March 13, making it the best index performer, in a bear market where the equity benchmarks tumbled more than 9 percent amid the novel coronavirus outbreak.

But, according to Parthiv Shah, director at Tracom Stock Brokers Pvt. Ltd., it is difficult to say whether this restriction will lead to a correction in the private lender’s stock price on Monday. “The participating banks are getting a sweet deal and therefore a lock-in for them is making sense but not for the retail investor who owns the stock at higher valuations,” Shah said. “This is done to soothe the nerves of the depositors to show commitment for the longer term.”

The retail shareholding, according to data disclosed on the exchanges, stands at about 48 percent as of December 2019. Total 25 mutual funds held 5.09 percent stake in the bank as of December.

(Corrects an earlier version of this story that incorrectly stated that when trade in the stock resumes, any shareholder holding 100 shares or more will be able to sell only up to 75 percent of his/her shares.)